Housing affordability is collapsing expeditiously in Arizona due to an overall lack of inventory, rapidly increasing prices and rising interest rates, according to a new report. 

Economists at the Common Sense Institute Arizona (CSI), a nonprofit research organization specializing in issues related to economic development, found that Arizona’s housing market is on a precipice. 

According to CSI Arizona, housing has become less affordable because of rapid price increases and rapid interest rate hikes. And the problem is more severe in Arizona and the Phoenix Metropolitan market; Arizona housing prices have increased by 40% compared to 25% nationally since the end of 2020. 

The report also highlights that Arizona’s housing shortage is damaging affordable housing as well. Findings suggest the 2006 housing peak, followed by the 2008-2009 recession, caused fewer homes built over the last decade. 

“Simply put, demand is outpacing supply and people are paying more because of it,” said Glenn Farley, CSI Arizona director of policy & research. “Low borrowing costs have been enabling this for months but that is now coming to an end.” 

Moreover, Arizona’s population growth is outracing available housing. Consequently, Arizona has an imbalance between availability and demand. Three hundred more people will move to the Valley today alone. Currently, Arizona is on pace to welcome more than 100,000 individuals at a time where few houses are for sale and rental occupancy is 98%. 

CSI reports while Arizona is on the cusp of the largest home construction boom in a decade – which could close Arizona’s housing shortfall of 95,000 units within 5 years – it may not survive a weakening U.S. economy and slowing housing market. 

The Home Builders Association of Central Arizona (HBACA) supports CSI’s research asserting, “The Arizona housing market is in the midst of a severe supply-demand imbalance which caused prices to rise quickly. For 33 consecutive months, between 2019 and 2022, the Phoenix market led the nation in home price appreciation. But we have now reached an inflection point with affordability. The combination of significant price increases with now rising interest rates leaves many buyers priced out.”

CSI’s home-buyer misery index (an economic model defining housing affordability as the normalized sum of interest rates and home prices over time), finds that over the last 30 years, Arizona’s housing affordability was relatively stable. Now, housing costs have surged since mid-2020 and 30-year rates have skyrocketed. 

CSI analysis reveals that between August 2010 and August 2020, the buyer misery index increased at just 0.3%/month. Since then, it’s increased 2.3%/month – more than 7 times faster. 

“Arguably, housing costs are now the worst they’ve ever been – double today the long run average and 31% above its prior peak in 2006,” continued Farley. 

Lastly, CSI measured housing affordability by hours worked required by 30-year mortgage payments. In short, in 1989, the typical household had to work 64 hours to pay the monthly mortgage bill. Last year, only 41 hours. Today, CSI reports rising rates have increased costs, in terms of time worked, to over 65 hours and, at current prices, mortgage rates rising to 8% would increase time costs to over 90 hours. 

“Realtors are actively involved in their communities, trying to help our clients find affordable housing,” Arizona Association of Realtors President Gary Nelson said. “The Arizona Association of Realtors will continue to be at the table – partnering with other groups and entities – to try as hard as we can to create more affordable housing in Arizona.” 

HBACA shares this optimism. 

“Builders are working every day to figure out ways to offer more affordable products. To do so, however, builders must navigate increasing land costs, material and labor shortages, and lengthy delays in the local permitting and approval process. Frequently, builders are prevented from mitigating these challenges by local zoning and other land use regulations. Fortunately, the Arizona legislature recently formed a housing supply study committee to look at needed policy and regulatory reforms to make housing in Â鶹´«Ă˝Ół»­ore affordable.”

You can check out CSI Arizona’s Affordable Housing Report. Also, check out Common Sense Institute Arizona on Twitter

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The Arizona Multihousing Association (AMA) has launched a new program called Arizona Housing for All, which will address the regulatory issues at the local, state, and federal levels to combat the supply and demand issues that are driving up rental prices. 

Arizona’s population grew by 100,000 last year,new residents per day, putting the total population at more than 7.7 million. This surge in growth was also accompanied by a surge in housing costs. In the Phoenix metropolitan area the median price of a home went up

The sustained growth has caused a housing shortage that is contributing to an increase in the cost of living. The Arizona Department of Housing estimates that 250,000 new housing units (homes and apartments) need to be built in order to put downward pressure on housing costs. 

Not only does the construction of new housing units contribute to the economy through jobs, and new sales tax revenue from materials and other construction inputs, but the operation of apartment complexes in the state brings in about $3 billion in revenue annually. The to the economy annually, $6.8 billion of which is in taxes. 

To keep pace with the steady rate of incoming residents, however, 17,000 new apartments are needed annually. 

For businesses looking to come to the Valley, into their decision. In North Phoenix, more than on a 70-acre site near the Taiwan Semiconductor Manufacturer Co. to accommodate the first wave of employees that will start onsite in 2024. 

Developers throughout the state attempting to meet the housing demands of Arizona’s strong economy, have been dealing with regulatory issues that present a barrier to new construction. According to We Are Apartments, a project of the National Multifamily Housing Council and the National Apartment Association, area for developers to gain entry. 

“If we don’t address the Arizona housing supply crisis by getting new projects approved by cities and towns, then there’s nowhere for rent to go but up,” Arizona Multihousing Association President and CEO Courtney LeVinus said. “Unfortunately, too many elected officials locally either want to kill new multifamily projects outright or mandate expensive additions. That puts residents who rent in a tough position — and risks the state’s economy.”

To address regulatory issues facing developers, the AMA is advocating for passage of HB 2674 at the state Legislature. The bill would create the Housing Supply Study Committee that will examine how to implement best practices and work with localities to improve the housing shortage statewide.

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Phoenix, and Arizona, are rapidly gaining in population. New Arizonans — workers, neighbors, friends, and family to many of us — have come to our state for social and economic opportunity. We simply aren’t building homes fast enough to put roofs over their heads.

from Zillow indicates that housing prices across Arizona have risen by 31.9% in the past year, compared to 12.5% from Oct. 2019 through Oct. 2020.

We have a supply and demand problem. Housing construction is not keeping pace with population growth, and the gap between housing supply and demand grows every day. This has caused Arizona’s housing prices to skyrocket, impacting one of Arizona’s distinct competitive advantages: affordable land and affordable housing.

Much of this issue centers around zoning. Phoenix and surrounding areas have a ton of “single-family zoning” — think suburbia — with little “high-density zoning” — think apartments and townhouses. For many years, Arizona thrived as a suburban hub. As time has gone on, and the state has become an increasingly popular destination for emigrants from across the nation and world, the Valley and cities across the state have gotten quite crowded.

This isn’t to say that single-family housing has got to go. It most certainly does not. It is to say that policymakers ought to reconsider the balance of low- and high-density zoning. 

Just take a look at Phoenix’s zoning map (this is just a cross-section, the full map can be found ):

Lots in red are zoned for commercial use. Lots in orange are zoned for high-density housing. All that light yellow is single-family zoning.

Leaders in government should work with community leaders, developers, job creators, and residents to expand high-density zoning and allow builders to fulfill market demand for housing. Right now we’re choking the hose, and it’s raising prices for everyone.

Anti-growth policies that impede housing development include limited multi-family zoning, inclusionary zoning, and rent control.

Inclusionary zoning is a which “requires or incentivizes private developers to designate a certain percentage of the units in a given project as below market rate (BMR)—cheaper than their value on the market, and often less than the price of producing them.” While it sounds good on paper, it ultimately reduces housing supply and raises housing prices.

Rent control, Megan McArdle of the Washington Post, is “[t]he one issue every economist can agree is bad.” Housing is a commodity that is governed by the laws of supply and demand, and price controls in this market do nothing to expand housing access, and actually “reduce… the incentive to supply rental housing.”

Milton Friedman’s is relevant here: “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”

Thankfully, Arizona has a statewide ban on cities enacting inclusionary zoning and rent control. But a lack of high density zoning in the Phoenix valley is contributing to Arizona’s increasing dearth of affordable housing.

One of the most important solutions to rapidly rising housing prices is quite simple: build more housing. That can’t be done so long as cities and towns across the state opt for anti-growth zoning and regulatory policies that push out low-, middle-, and working-class residents who can barely afford to get by as is.

Policy solutions and thorough research on the issue already exist. Organizations like the have been fighting this battle for years and their policy recommendations deserve serious consideration as leaders race to solve this housing crisis.

The time is now for Arizona leaders, particularly those in cities and towns across the state who directly oversee zoning laws, to act on housing. Let’s venture beyond good intentions, and secure good outcomes as well.

Joe Pitts is studying business management (B.S.) and civic and economic thought and leadership (B.S.) at Arizona State University. He is an intern at the Arizona Â鶹´«Ă˝Ół»­ of Commerce & Industry, and the cofounder and Editor-in-Chief of the Western Tribune (westerntrib.com).

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